How to Use Subscriptions to Unlock Additional Revenue for Your E-Commerce Business
Recently, e-commerce businesses of all shapes and sizes have been using a new tactic to drive growth: they’ve started offering subscription-based products.
You’ve probably seen or heard about subscription boxes. In fact, maybe you’re even a subscriber to a handful! For those who aren’t familiar though, the customer typically pays a monthly fee (which is automatically deducted from their account, much like a magazine subscription) and in return the company sends a product (or combination of products) each month.
In fact, many merchants these days are offering subscriptions to just about anything you can imagine; “goodies” include makeup, clothing, dog toys, wine, and even avocados!
The subscription model isn’t just for “subscription box” companies anymore, though! There are a few ways in which businesses can increase their revenue by using subscriptions. In this post, we’ll take a look at each of those methodologies, and then discuss how you can set up subscriptions of your own!
The traditional subscription box model
Birchbox, one of the first subscription box companies, sends out a box each month with a variety of makeup and cosmetic samples to their subscribers. An important component of this business model is the expectation that customers will eventually purchase the full-size version of the samples which they enjoy using.
Subscription boxes have certainly gone “mainstream” today; a 2015 New York Times article noted that the number of boxes grew from 800 in 2014 to 1,200 just one year later.
Same product category at regular intervals
If a subscription box isn’t quite right for your business, that doesn’t mean that you don’t stand to increase revenue from the subscription model! Instead, companies can send out subtle variations of the same type of product on a standalone basis as well. For example, MeUndies allows anyone to purchase their underwear online, but they also allow customers to “subscribe” to additional underwear each month and offer a discount in exchange.
Same exact product at regular intervals
Similarly, some businesses send customers the same exact product each month – this is particularly useful for disposable products which need to be repurchased regularly. Amazon calls their version of this offering “subscribe and save”; for example, when customers subscribe to Pampers, they’ll automatically receive more diapers at a regular interval — no need to go back online and go through the process of reordering.
Dollar Shave Club also sends new razor blades to customers monthly. This creates a certain level of comfort and convenience for the customer, as they feel like they no longer need to remember to buy the razors on their own; they now rely on the subscription to “remember” for them.
So what’s an e-commerce manager or store owner to conclude from all of this? Stores of virtually all types stand to increase revenues by offering a selection of products on a subscription basis.
Store owners don’t necessarily need to send out literal “boxes” per se, but converting a customer who typically purchases 3 – 4 times per year into a monthly “subscriber” on autopilot is immensely valuable. For example, according to an analysis done by Consumer Intelligence Retail Partners, subscribers to Amazon’s Prime service spend about $1,100 per year, compared to about $600 for non-subscribers – a difference of over 83%! What’s more, the longer the customer stays subscribed, the more connected they feel toward your brand as a whole, and the more likely they are to therefore purchase additional products and recommend your business over competitors’ going forward.
The New “Conversion Pathway”
Put differently, subscription-based products represent a seismic shift in the typical “conversion pathway” which customers have historically followed when making multiple purchases.
It takes a lot of work to get a customer to make just a couple of purchases in an e-commerce setting; they have to learn about the business in some fashion (through an ad, for example), visit the site, and make a decision as to whether or not to buy. Then, the process starts all over again! The customer has to be reminded about the store, and go through the same decision-making process. Along the way, there are all sorts of reasons that customers don’t make repeat purchases: dislike of the product initially, selection of a competitor, apathy, and a variety of others.
But in a subscription model, the customer only has to make that purchase decision a single time – after that, they automatically become repeat purchasers! The benefits of this model for an e-commerce business simply can’t be understated.
How Do I Add Subscriptions to my Store?
Whether you manage a custom-built e-commerce site or use a hosted platform, a number of companies make it easier than ever to add subscription products to your online store. Many of these vendors also provide the ancillary services you’d expect when it comes to managing your subscriptions: customizing the look and feel for your store, skipping deliveries, changing payment plans, analytics and much more. For example, Recharge is one of the more popular providers in the space — their experienced team has worked with companies such as Hallmark to implement subscription-oriented programs.
Challenges with Subscription-Based Products
Subscription models are not without their challenges, however. Just like in traditional e-commerce businesses, conversion is still a tough task; in fact, if you decide to offer subscription-based products, you may find that your customers may be more cautious to sign up for a recurring billing model than they would be to try a product in a one-off purchase.
Equally as importantly, if you decide to offer subscription-based products to your customers, you’ll face a slightly new challenge as well: keeping customers subscribed each month. While the quality of your product will be the biggest driver of retention, there are a number of other tactics you can try which are likely to boost retention as well:
- Keep it fresh. One common problem with subscription-based products is that customers eventually tire of receiving the same item each month. If you’re able to, try changing designs, adding bonus “goodies”, or utilizing other tactics to “surprise and delight” your subscribers.
- Make it exclusive. Let your subscribers know that they’re getting something from you that’s hard to find elsewhere. “Limited edition” items are particularly useful.
- Provide excellent service. Spend time ensuring that everything that supports your standout products – particularly your customer service and related communication – make subscribers feel good about remaining subscribed.
Swell Can Help Solve Subscription Challenges, Too!
Using an incentive marketing platform such as Swell can also help to overcome many of the traditional hurdles associated with subscription-based products. In particular, site managers who are offering a handful of products on subscription can use Swell’s “custom actions” to reward customers for a variety of subscription-friendly activities, such as:
- Incentivizing first-time subscriptions. Merchants can use Swell to provide rewards – points, coupons, free products, etc. – specifically when a customer subscribes to a product. In particular, this can help give customers the gentle push they need to try out a subscription!
- Remaining Subscribed. Site managers can also choose to reward customers intermittently based on how long they’ve been subscribed (as an incentive to remain subscribed). For example, a business could use Swell to reward a customer with a $15 off coupon or points for every six months that the customer stays subscribed.
- Making additional purchases. Because subscribers are likely to be some of your most devoted customers, some merchants find it helpful to provide an incentive to subscribers when they make additional purchases from the store. For example, a merchant who sends out soap once per month might want to encourage subscribers to purchase additional soap bars – perhaps as gifts for friends!
While subscription services certainly do present new challenges compared to the traditional e-commerce model, the benefits for both the customer and the merchant have led to the rapid rise of subscription-based products as of late. And remember, no matter the challenges you face in considering offering some of your products in a subscription-based fashion, Swell is here to help!